The accompanying notes are an integral part of these unaudited condensed financial statements.
The accompanying notes are an integral part of these unaudited condensed financial statements.
The accompanying notes are an integral part of these unaudited condensed financial statements.
NOTES TO CONDENSED UNAUDITED FINANCIAL STATEMENTS
FOR THE NINE MONTH PERIODS ENDED OCTOBER 31, 2016 AND 2015
1. NATURE OF OPERATIONS
APT Systems, Inc
. (APT Systems, the Company, "We" or "Us") was incorporated in the State of Delaware on October 29, 2010 (Inception) to engage in the creation of innovative and intuitive stock trading platforms, financial apps and visualization solutions for charting the financial markets. While management works to deliver equities trading software it also is strategically acquiring other compatible financial businesses or software which demonstrate strong growth potential stemming from a solid business plan. We have identified prospective opportunities and continue with due diligence efforts that will and do include testing software performance within funded external trading accounts. This quarter, the Company has continued to claim income earned from its testing of strategies and trading software as revenue. The testing continues to generate positive returns. Some revenue continues to come from the Apple store from a previously launched publication promoting a trading strategy that is successfully testing Apple revenue payment delivery.
Management will continue to expand upon trading its platform named Intuitrader and related software products, being those recently acquired called Global Trader as well as those developed in-house. Any profits generated from funds used in live trading tests can be used to offset future development costs, for which there is a plan to operate from within a wholly-owned subsidiary. We constantly strive to pioneer original trading tools and indicators along with new approaches for managing trading risk. After beta testing is completed, our proprietary custom charting tools and trading platform apps will later be available to subscribers for a fee.
During the twelve months ended January 31, 2016, the Company was providing technical writing and computer assisted design services to other startups using a contractor, a related person (family member to the Chief Executive Officer), to generate certain additional revenues. We confirm that there is no consulting revenue this quarter as was anticipated and if we are able to secure other contracts or raise the necessary funding, we will re-engage the contractor to work on projects.
2. GOING CONCERN AND LIQUIDITY
As of October 31, 2016, the Company had cash of $1,303, insufficient revenue to meet its ongoing operating expenses, and liabilities of $722,163, accumulated losses of $1,365,238 and a shareholders deficit of $609,634.
In the audited financial statements for the fiscal years ended January 31, 2016 and 2015, the Reports of our Independent Registered Public Accounting Firm included an explanatory paragraph that describes substantial doubt about our ability to continue as a going concern.
The unaudited financial statements for the nine months ended October 31, 2016 have been prepared on a going concern basis which assumes the Company will be able to realize its assets and discharge its liabilities in the normal course of business for the foreseeable future. The Company anticipates future losses in the development of its business raising substantial doubt about the Companys ability to continue as a going concern. The ability to continue as a going concern is dependent upon the Company generating profitable operations in the future and, or, obtaining the necessary financing to meet its obligations and repay its liabilities arising from normal business operations when they come due. Management intends to finance operating costs over the next twelve months with existing cash on hand, loans, loans from directors and, or, the sale of common stock. There is no assurance that this series of events will be satisfactorily completed.
Financial statements do not include any adjustments relating to the recoverability and classification of assets and liabilities that may be necessary if the Company is unable to continue as a going concern.
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation of Financial Statements
The accompanying unaudited financial statements of APT Systems have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-Q and Article 8 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In our opinion the financial statements include all adjustments (consisting of normal recurring accruals) necessary in order to make the condensed financial statements not misleading. Operating results for the nine months ended October 31, 2016 are not necessarily indicative of the final results that may be expected for the year ended January 31, 2017.
8
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
For more complete financial information, these unaudited financial statements should be read in conjunction with the audited financial statements for the year ended January 31, 2016 included in our Form 10-K filed with the SEC.
Cash and Cash Equivalents
The Company considers all highly liquid investments with original maturity of three months or less to be cash equivalents.
Use of Estimates and Assumptions
The preparation of financial statements in conformity with generally accepted accounting principles requires that management makes estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the period. Actual results could differ from those estimates. Due to uncertainties inherent in the estimation process, it is possible that these estimates could be materially revised within the next year.
Foreign Currency Translation
The financial statements are presented in United States dollars. In accordance with ASC 830,
Foreign Currency Matters
, foreign denominated monetary assets and liabilities are translated into their United States dollar equivalents using foreign exchange rates which prevailed at the balance sheet date. Revenue and expenses are translated at average rates of exchange during the year. Gains or losses resulting from foreign currency transactions are included in results of operations.
Foreign currency transaction gains and losses are recorded in the statements of operations as a component of other income (expense).
Financial Instruments
Fair value measurements are determined based on the assumptions that market participants would use in pricing an asset or liability. Accounting Standards Codification (ASC) 820-10 establishes a hierarchy for inputs used in measuring fair value that maximizes the use of observable inputs and minimizes the use of unobservable inputs by requiring that the most observable inputs be used when available. ASC 820 establishes a fair value hierarchy that prioritizes the use of inputs used in valuation methodologies into the following three levels:
Level 1: Quoted prices (unadjusted) for identical assets or liabilities in active markets. A quoted price in an active market provides the most reliable evidence of fair value and must be used to measure fair value whenever available.
Level 2: Significant other observable inputs other than Level 1 prices such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data.
Level 3: Significant unobservable inputs which reflect a reporting entitys own assumptions about the assumptions that market participants would use for pricing an asset or liability. For example, level 3 inputs would relate to forecasts of future earnings and cash flows used in a discounted future cash flows method.
The recorded amounts of financial instruments, including cash equivalents, investments, accounts payable, accrued expenses, note payable and loan from director approximate their market values as of October 31, 2016 and January 31, 2016 due to the intended short term maturities of these financial instruments.
The Companys assets and liabilities recorded at fair value have been categorized based upon a fair value hierarchy.
9
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
The following table presents information about the Companys liabilities measured at fair value on a recurring basis and the Companys estimated level within the fair value hierarchy of those assets and liabilities as of October 31, 2016 and January 31, 2016:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measured at October 31, 2016
|
|
|
Total carrying value
at October 31,
|
|
|
Quoted prices in active
markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency investments
|
|
$
|
14,581
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
14,581
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
259,384
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
259,384
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Fair value measured at January 31, 2016
|
|
|
Total carrying value
at January 31,
|
|
|
Quoted prices in active
markets
|
|
|
Significant other
observable inputs
|
|
|
Significant
unobservable inputs
|
|
|
2016
|
|
|
(Level 1)
|
|
|
(Level 2)
|
|
|
(Level 3)
|
Assets:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Foreign currency investments
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Liabilities:
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
Derivative liabilities
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
|
|
$
|
-
|
There were no transfers between Level 1, 2 or 3 during the nine months ended October 31, 2016.
The following table presents additional information about Level 3 assets and liabilities measured at fair value. Both observable and unobservable inputs may be used to determine the fair value of positions that the Company has classified within the Level 3 category. As a result, the unrealized gains and losses for assets and liabilities within the Level 3 category may include changes in fair value that were attributable to both observable (e.g., changes in market interest rates) and unobservable (e.g., changes in unobservable long-dated volatilities) inputs.
Changes in Level 3 liabilities measured at fair value for the nine months ended October 31, 2016:
|
|
|
|
Derivative liabilities Balance - February 1, 2016
|
|
$
|
-
|
Fair value of derivative liability
|
|
|
259,384
|
Derivative liabilities Balance - October 31, 2016
|
|
$
|
259,384
|
|
|
|
|
Convertible notes at fair value Balance - February 1, 2016
|
|
$
|
62,000
|
Addition of convertible notes
|
|
|
81,600
|
Conversion of notes and interest into common stock
|
|
|
(132,720)
|
Cash paid settlement of note
|
|
|
(20,000)
|
Gain on extinguishment of debt
|
|
|
(78,356)
|
Change in fair value of convertible notes (including OID discount)
|
|
|
152,834
|
Convertible notes at fair value Balance - October 31, 2016
|
|
$
|
65,358
|
The Companys derivative liabilities are measured at fair value using the Black Scholes valuation methodology. A summary of the weighted average (in aggregate) significant unobservable inputs (Level 3 inputs) used in measuring the Companys derivative liabilities that are categorized within Level 3 of the fair value hierarchy for the nine months ended October 31, 2016 is as follows:
10
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Convertible Notes at Fair Value
|
|
|
|
|
Date of valuation
|
|
October 31, 2016
|
|
Strike price
|
|
$
|
0.00060 - 0.00128
|
|
Volatility (annual)
|
|
|
316.23 - 324.92
|
%
|
Risk-free rate
|
|
|
0.20% to 0.54
|
%
|
Dividend yield (per share)
|
|
|
0
|
%
|
The development and determination of the unobservable inputs for Level 3 fair value measurements and fair value calculations are the responsibility of the Companys Management.
Software
The Company has software for charting and technical indicators that it uses in the development of certain mobile applications. The software and any upgrades are being amortized over useful lives ranging from 3 5 years.
Website
The Company accounts for website development costs in accordance with ACS 350-50
Website Development Costs
. Costs incurred to register domain names, integrated databases and add additional functionality are being amortized over 1 3 years. Costs incurred in general maintenance of the website or hosting costs are expensed as incurred.
Revenue Recognition
The Company applies paragraph 605-10-S99-1 of the FASB Accounting Standards Codification for revenue recognition. The Company recognizes revenue when it is realized or realizable and earned. The Company considers revenue realized or realizable and earned when all of the following criteria are met: (i) persuasive evidence of an arrangement exists, (ii) the product has been shipped or the services have been rendered to the customer; (iii) the sales price is fixed or determinable, and (iv) collectability is reasonably assured.
Research and Development Costs
Any costs incurred in research and development are listed separately and expensed as incurred.
Deferred Financing Costs
Costs with respect to issue of common stock, warrants, stock options or debt instruments by the Company are initially deferred and ultimately offset against the proceeds from such equity transactions or amortized as debt discount over the term of any debt funding if successful or expensed if the proposed equity or debt transaction is unsuccessful.
Impairment of Long-Lived and Intangible Assets
In the event that facts and circumstances indicated that the cost of long-lived and intangible assets may be impaired, an evaluation of recoverability will be performed. If an evaluation is required, the estimated future undiscounted cash flows associated with the asset were compared to the asset's carrying amount to determine if a write-down to market value or discounted cash flow value is required.
Advertising costs
Advertising costs are expensed as incurred. The Company recorded advertising and promotional costs of $12,555 and $0 for the nine months ending October 31, 2016 and 2015, respectively. For the three months ended October 31, 2016 and 2015, advertising and promotional costs were $1,019 and $0, respectively.
11
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Income Taxes
The Company accounts for income taxes in accordance with FASB ASC 740
Income Taxes
. Under FASB ASC 740, deferred income taxes are recognized for the tax consequences in future years of differences between the tax bases of assets and liabilities and their financial statement reported amounts at each period end, based on enacted tax laws and statutory tax rates applicable to the periods in which the differences are expected to affect taxable income. Valuation allowances are established, when necessary, to reduce deferred tax assets to the amounts expected to be realized. The provision for income taxes represents the tax expense for the period, if any, and the change during the period in deferred tax assets and liabilities. FASB ASC 740 also provides criteria for the recognition, measurement, presentation and disclosure of uncertain tax positions. Under FASB ASC 740, the impact of an uncertain tax position on the income tax return may only be recognized at the largest amount that is more-likely-than-not to be sustained upon audit by the relevant taxing authority. At October 31, 2016 and 2015, the Company has no unrecognized tax benefits.
Basic and Diluted Net Income (Loss) per Share
The Company computes net income (loss) per share in accordance with ASC 260, "
Earnings per Share
" which requires presentation of both basic and diluted earnings per share (EPS) on the face of the income statement. Basic EPS is computed by dividing net income (loss) available to common shareholders (numerator) by the weighted average number of common shares outstanding (denominator) during the period. Diluted EPS gives effect to all dilutive potential common shares outstanding during the period including stock options, using the treasury stock method, and convertible preferred stock, using the if-converted method. In computing diluted EPS, the average stock price for the period is used in determining the number of shares assumed to be purchased from the exercise of stock options or warrants. Diluted EPS excludes all dilutive potential common shares if their effect is anti-dilutive. For the nine month periods ended October 31, 2016 and 2015, the Company did have potentially dilutive debt instruments that have been excluded from the earnings per share calculation; as such an inclusion would have been anti-dilutive due to the losses incurred in both periods.
Stock Based Compensation
The Company accounts for employee and non-employee stock awards under ASC 718 and ASC 505, whereby equity instruments issued to employees for services are recorded based on the fair value of the instrument issued and those issued to non-employees are recorded based on the fair value of the consideration received or the fair value of the equity instrument, whichever is more reliably measurable. The Company has adopted a stock option plan, as disclosed in
Note 8 Stockholders Deficit
below. During the nine month periods ended October 31, 2016 and 2015, no stock options had been issued or outstanding to date.
The Company accounts for stock-based payments to non-employees in accordance with ASC 505-50, Equity-Based Payments to Non-Employees. Stock-based payments to non-employees include grants of stock, grants of stock options and issuances of warrants that are recognized based on the value of the vested portion of the award over the requisite service period as measured at its then-current fair value as of each financial reporting date.
Trading Investments
The Companys trading investments are reported at fair value, with realized and unrealized gains and losses included in earnings.
In February of 2016, the Company contracted traders as testers as part of the due diligence process to test strategies, indicator reliability and trading platforms within their designated accounts. The contracted traders could use funds for trading securities or derivatives, which mainly consisted of various options, currency pairs and futures. All trading accounts will return to cash after the strategies are monitored over a reasonable period of time. While, the Companys business model is not investing, short term investing is required to test elements of the software including connectivity to independent brokers. As of October 31, 2016, the fair value of trading accounts collectively was $14,581. Note that no funds were recalled from the test trading accounts in this quarter. In addition, testing was conducted over all three months.
|
|
|
|
|
|
|
|
|
|
|
October 31, 2016
|
|
October 31, 2015
|
|
|
Three Months
|
|
Nine Months
|
|
Three
Months
|
|
Nine
Months
|
Investment available for trading in investments
|
$
|
12,539
|
$
|
20,500
|
$
|
-
|
$
|
-
|
Unrealized gains (losses)
|
|
2,593
|
|
7,936
|
|
-
|
|
-
|
Redemptions/commissions
|
|
(551)
|
|
(13,855)
|
|
-
|
|
-
|
Investments in trading at fair market value for period
|
$
|
14,581
|
$
|
14,581
|
$
|
-
|
$
|
-
|
12
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
Beneficial Conversion Features
If the conversion features of conventional convertible debt provides for a rate of conversion that is below market value, this feature is characterized as a beneficial conversion feature (BCF). A BCF is recorded by the Company as a debt discount pursuant to ASC Topic 470-20 Debt with Conversion and Other Options. In those circumstances, the convertible debt is recorded net of the discount related to the BCF and the Company amortizes the discount to interest expense over the life of the debt using the effective interest method.
Business Segments
The Company believes that its activities during the nine month periods ended October 31, 2016 and 2015 comprised a single segment.
Recently Issued Accounting Pronouncements
In May 2014, the FASB issued ASU No. 2014-09, Revenue from Contracts with Customers (Topic 606) (ASU 2014-09). ASU 2014-09 amends the guidance for revenue recognition to replace numerous, industry specific requirements and converges areas under this topic with those of the International Financial Reporting Standards. The ASU implements a five-step process for customer contract revenue recognition that focuses on transfer of control, as opposed to transfer of risk and rewards. The amendment also requires enhanced disclosures regarding the nature, amount, timing and uncertainty of revenues and cash flows from contracts with customers. Other major provisions include the capitalization and amortization of certain contract costs, ensuring the time value of money is considered in the transaction price, and allowing estimates of variable consideration to be recognized before contingencies are resolved in certain circumstances. The amendments in this ASU are effective for reporting periods beginning after December 15, 2016, and early adoption is prohibited. Entities can transition to the standard either retrospectively or as a cumulative-effect adjustment as of the date of adoption. The Company is currently assessing the impact the adoption of ASU 2014-09 will have on our condensed financial statements and disclosures.
In August 2014, the FASB issued guidance that requires management to evaluate whether there are conditions or events that raise substantial doubt about an entity's ability to continue as a going concern. If such conditions or events exist, disclosures are required that enable users of the financial statements to understand the nature of the conditions or events, management's evaluation of the circumstances and management's plans to mitigate the conditions or events that raise substantial doubt about the entity's ability to continue as a going concern. The Company will be required to perform an annual assessment of its ability to continue as a going concern when this standard becomes effective on January 1, 2017; however, the adoption of this guidance is not expected to impact our financial position, results of operations or cash flows.
In January 2016, FASB issued ASU No. 2016-01,
Recognition and Measurement of Financial Assets and Financial Liabilities
. ASU No. 2016-01 requires equity investments to be measured at fair value with changes in fair value recognized in net income; simplifies the impairment assessment of equity investments without readily determinable fair values by requiring a qualitative assessment to identify impairment; eliminates the requirement for public business entities to disclose the method(s) and significant assumptions used to estimate the fair value that is required to be disclosed for financial instruments measured at amortized cost on the balance sheet; requires public business entities to use the exit price notion when measuring the fair value of financial instruments for disclosure purposes; requires an entity to present separately in other comprehensive income the portion of the total change in the fair value of a liability resulting from a change in the instrument-specific credit risk when the entity has elected to measure the liability at fair value in accordance with the fair value option for financial instruments; requires separate presentation of financial assets and financial liabilities by measurement category and form of financial assets on the balance sheet or the accompanying notes to the financial statements and clarifies that an entity should evaluate the need for a valuation allowance on a deferred tax asset related to available-for-sale securities in combination with the entitys other deferred tax assets. ASU No. 2016-01 is effective for financial statements issued for fiscal years beginning after December 15, 2017, and interim periods within those fiscal years. The Company is currently evaluating the impact that ASU No. 2016-01 will have on its condensed financial statements and related disclosures.
In February 2016, FASB issued ASU No. 2016-02,
Leases
(Topic 842) which supersedes FASB ASC Topic 840, Leases (Topic 840) and provides principles for the recognition, measurement, presentation and disclosure of leases for both lessees and lessors. The new standard requires lessees to apply a dual approach, classifying leases as either finance or operating leases based on the principle of whether or not the lease is effectively a financed purchase by the lessee. This classification will determine whether lease expense is recognized based on an effective interest method or on a straight-line basis over the term of the lease, respectively. A lessee is also required to record a right-of-use asset and a lease liability for all leases with a term of greater than twelve months regardless of classification. Leases with a term of twelve months or less will be accounted for similar to existing guidance for operating leases. The standard is effective for annual and interim periods beginning after December 15, 2018, with early adoption permitted upon issuance. When adopted, the Company does not expect this guidance to have a material impact on its condensed financial statements.
13
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (Continued)
In March 2016, the FASB issued ASU No. 2016-09,
Compensation-Stock Compensation (Topic 718), Improvements to Employee Share-Based Payment Accounting
. Under ASU No. 2016-09, companies will no longer record excess tax benefits and certain tax deficiencies in additional paid-in capital (APIC). Instead, they will record all excess tax benefits and tax deficiencies as income tax expense or benefit in the income statement and the APIC pools will be eliminated. In addition, ASU No. 2016-09 eliminates the requirement that excess tax benefits be realized before companies can recognize them. ASU No. 2016-09 also requires companies to present excess tax benefits as an operating activity on the statement of cash flows rather than as a financing activity. Furthermore, ASU No. 2016-09 will increase the amount an employer can withhold to cover income taxes on awards and still qualify for the exception to liability classification for shares used to satisfy the employers statutory income tax withholding obligation. An employer with a statutory income tax withholding obligation will now be allowed to withhold shares with a fair value up to the amount of taxes owed using the maximum statutory tax rate in the employees applicable jurisdiction(s). ASU No. 2016-09 requires a company to classify the cash paid to a tax authority when shares are withheld to satisfy its statutory income tax withholding obligation as a financing activity on the statement of cash flows. Under current U.S. GAAP, it was not specified how these cash flows should be classified. In addition, companies will now have to elect whether to account for forfeitures on share-based payments by (1) recognizing forfeitures of awards as they occur or (2) estimating the number of awards expected to be forfeited and adjusting the estimate when it is likely to change, as is currently required. The amendments of this ASU are effective for reporting periods beginning after December 15, 2016, with early adoption permitted but all of the guidance must be adopted in the same period. The Company is currently assessing the impact that ASU No. 2016-09 will have on its condensed financial statements.
In August 2016, the FASB issued ASU No. 2016-15,
Statement of Cash Flows - Classification of Certain Cash Receipts and Cash Payments
, which addresses eight specific cash flow issues with the objective of reducing the existing diversity in practice in how certain cash receipts and cash payments are presented and classified in the statement of cash flows. The standard is effective for fiscal years beginning after December 15, 2017, including interim periods within those fiscal years. Early adoption is permitted, including adoption in an interim period. The Company is currently evaluating the impact of this new pronouncement on its condensed statements of cash flows.
4. RELATED PARTY TRANSACTIONS
Effective November 1, 2013, the Company began to accrue a monthly salary of $5,000 per month for the President on an ongoing basis. Accrued officer compensation as of October 31, 2016 and January 31, 2016 was $170,300 and $125,300, respectively. As resolved, the accrued compensation will only be paid after January 1, 2018 as and when the directors decide the Company has sufficient liquidity to pay some, or all, of the amounts accrued in cash or by issuing shares. The President of the Company can also consider submitting a request to the Board of Directors for permission to convert some, or all, of her accrued compensation into shares of the Companys common stock on payments due above of $170,300, but only after January 1, 2018. The share price considerations will be either the publicly quoted share price, when such a publicly quoted price is available; or equal to or above the last cash price the Company recorded for the sale of its common shares to third parties.
As of October 31, 2016 and January 31, 2016, the Company owed the President $4,571 and $2,672 respectively by way of loans. As of October 31, 2016 and January 31, 2016, the Company repaid the Presidents short term advance of $4,264 and $8,540, respectively. The loans are unsecured, due on demand and interest free.
The Company provided consulting, technical writing and computer assisted design services to other startups provided by a contractor, a related person (family member to the Chief Executive Officer) to generate certain additional revenues. In this quarter no contracts were accepted and these revenues have ended as anticipated. The Company paid $0 and $17,088 to the related party contractor in respect of the provision of these services during the nine months ended October 31, 2016 and 2015, respectively.
5. SOFTWARE
|
|
|
|
|
The Company has software that it uses for the development of certain mobile applications. The software and any upgrades are being amortized over useful lives ranging from 3 5 years. The Company recorded amortization expense of $5,055 and $500 for the three months ended October 31, 2016 and 2015, respectively, and $6,055 and $1,612 for the nine months ended October 31, 2016 and 2015, respectively.
|
|
October 31, 2016
|
|
January 31, 2016
|
|
|
|
|
|
Charting software
|
$
|
102,705
|
$
|
11,605
|
Website
|
|
2,080
|
|
2,080
|
|
$
|
104,785
|
$
|
13,685
|
Accumulated amortization
|
|
(17,326)
|
|
(11,271)
|
Net book value
|
$
|
87,459
|
$
|
2,414
|
14
6. CONVERTIBLE NOTES PAYABLE, RELATED AND UNRELATED PARTIES
On January 8, 2014 the Company issued an unsecured convertible note to one accredited investor (as that term is defined under the Securities Act of 1933, as amended) in the aggregate amount of $50,000. This convertible note accrues interest at the rate of 19% per annum and is convertible only when a qualifying financing event takes place. The Company secured an initial extension of the convertible note to January 29, 2015 and subsequently obtained a further extension to December 31, 2016. The note has been further reduced to $48,500 through the sales of part of the debt to unrelated third parties (see subsequent events).
The note, but none of the accrued unpaid interest thereon, may convert into equity securities at the option of the holder if the Company issues equity securities and any other indebtedness in aggregate with gross proceeds of $1,200,000, including conversion of the note (a Qualified Financing). The conversion price is equal to 80% of the per share price paid by the purchasers of such equity securities in the Qualified Financing. Accrued and unpaid interest will be paid by the Company at time of conversion.
If a Qualified Financing has not occurred and the Company elects to consummate a sale of the company prior to the maturity date of the note, the Company will give the holder a minimum ten days prior written notice of an anticipated closing date of such sale of the Company in order that the holder may consider a conversion of their note into equity in advance of a sale transaction.
No value had been assigned to the conversion feature attached to this note prior, as the possibility of the Company completing such a Qualifying Financing or completing a sale of the Company before January 31, 2016 was considered to be very remote.
On April 17, 2015, the Company received $5,000 by way of an unsecured short-term loan from a non-related party for a term of 60 days that was later extended until April 23, 2017. Principal and interest at 8% per annum accrued thereon are due and payable on April 23, 2017. Also, the lender has the right to convert the principal and accrued interest into shares of the Companys common stock at $.01 cents.
On October 2, 2015, the Company received $12,500 by way of an unsecured short-term loan from a non-related party for a term of one year. Principal and interest at 8% per annum accrued thereon are due and payable on October 1, 2016. Also, the lender has the right to convert the principal and accrued interest into shares of the Companys common stock. The conversion rate is equal to the fair market value of the Companys common stock on the date of conversion. This loan has been extended until Oct 1, 2017.
The Company had executed three lending arrangements with a related party, affiliated to the CEO of the company. The effective dates of the loans are November 24, 2015, December 8, 2015 and January 14, 2016. The loan amounts are $3,000, $16,121 and $1,500, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before December 31, 2018, December 31, 2018 and January 31, 2019, respectively.
The Company has executed two additional notes with the same related party. The effective dates of the additional loans are March 10, 2016 and March 15, 2016. The loan amounts are $2,770 and $2,885, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before January 31, 2019. All notes are convertible, at the holders request, into shares of the Companys common stock at the rate of $9.50 per share.
In February and March of 2016, the Company entered into two loan agreements with unrelated parties for $33,000 and $25,600, respectively. The notes are due and payable twelve months from the issuance date and bear interest at 8% per annum. If the Notes are paid off prior to the due date, the Company is required to pay the face amount plus a scaled penalty ranging from 10% to 35% depending on the repayment date. Also noted, after 181 days from the issuance date, the Note is convertible into the shares of the Companys common stock. The conversion rate is equal to 55% of the market price during the previous 10 trading days. The loans were due in August and September 2016.
The Convertible Promissory Note for $33,000 with an Accredited Investor is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company in the event of a default. The Company accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Companys own stock and, as such, recorded as a liability.
Each convertible promissory note derivative liabilities have been measured at fair value at October 31, 2016 using a Black Scholes. Since the Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
After September 9, 2016, the Company issued 16,232,785 shares of common stock at a conversion price of $0.00121 per share in settlement of note payable. At September 14, 2016, the first Convertible Promissory Note for $33,000 was paid in full. As such, the fair value of the conversion feature at October 31, 2016 is $0.
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6. CONVERTIBLE NOTES PAYABLE, RELATED AND UNRELATED PARTIES (Continued)
The Convertible Promissory Note for $26,500 with an Accredited Investor is subject to anti-dilution adjustments that allow for the reduction in the Conversion Price in the event the Company in the event of a default. The Company accounted for the conversion option in accordance with ASC Topic 815. Accordingly, the Conversion Option is not considered to be solely indexed to the Companys own stock and, as such, recorded as a liability.
Each convertible promissory note derivative liabilities have been measured at fair value at October 31, 2016 using a Black Scholes model. Since the Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
After September 26, 2016, the Company issued 7,000,000 shares of common stock for cash at a price of $0.00121 per share in partial settlement of note payable. At September 26, 2016, the second Convertible Promissory Note for $26,500 had a balance of $15,463. As such, the fair value of the conversion feature at October 31, 2016 is $93,607.
The inputs into the Black Scholes model are as follows:
|
|
|
October 31, 2016
|
Closing share price
|
$0.0022 - $0.01490
|
Conversion price
|
$0.00083 - $0.00121
|
Risk free rate
|
0.31% 0.54%
|
Expected volatility
|
316.23% 324.86%
|
Dividend yield
|
0%
|
Expected life
|
.39 to .50years
|
The convertible loan for $33,000 that was due on August 13, 2016 had been designated to be repaid in two stages as there was concern for the entire loan to be converted at current share prices. The outstanding portion of the loans converted to date representing 16,232,785 a part of the total of 23,232,785 restricted and non-restricted common shares issued in the third quarter. The second convertible loan is due on September 14, 2016 and a portion of the debt being 7,000,000 shares was converted on September 26, 2016. The Company recognized gain on conversion of $78,356. The Company borrowed $20,000 that is not convertible in nature and has allowed a partial conversion of the loans to reduce its liabilities and to provide further liquidity with free trading shares. (See subsequent event as the second note for $25,600 was repaid in full in November).
In April 2016, the Company entered into an agreement (Investment Agreement) for an unrelated third party (Investor) to purchase up to $5,000,000 of the Companys common stock. In conjunction with the Investment Agreement, the Company entered into a registration rights agreement (Registration Agreement). The Registration Agreement requires the Company to use its best effort, within thirty days, to file with the SEC a Form S-1 (Registration Statement) covering a certain number of shares to be used for the Investment Agreement. Upon the effective date of the Companys Registration Statement, the Company has the right to put (Put Notice) to the investor, for purchase, certain amount of shares of the Companys common stock. For each Put Notice, the number of shares shall be equal to one-hundred and fifty percent of the average of the daily trading dollar volume of the Companys common stock for the ten consecutive trading days immediately prior to the Put Notice, so long as such amount does not exceed an accumulative amount per month of $150,000, unless prior approval of the Investor.
In conjunction with Investment Agreement, the Company entered issued two promissory Notes to the Investor in the amounts of $46,000 and $55,000. Both promissory notes accrue interest at the rate of 10% per annum and are due six and seven months respectively from the effective date of the Companys Registration Statement which was filed on May 17, 2016. This statement is not effective as of today. The first tranche of proceeds of $20,000 from the promissory note were used to pay the Companys fees associated with the Investment Agreement. The proceeds from the $55,000 promissory note are to be used to pay the Companys commitment fee to the Investor. The Investor did not advance the second tranche of the promissory note of $46,000 after the S-1 was filed on May 16, 2016. Further review of the S-1 by the Securities Exchange Commission has been set aside by the Company as it does not currently trade on the OTCQB marketplace. While the company may upgrade from the OTC Pink status at a cost of $12,500, it did not qualify to do so during this quarter. A board decision on this matter is further complicated by the decision of our counsel to end their security practice in June of this year. The directors had chosen to discontinue matters pertaining to addressing the S1 comments for the time being. However, the directors did negotiate with the Investor and agreed to repay the original advance and applied interest for sum of $25,000 and the second promissory note for $55,000 has been extinguished as part of this agreement (see subsequent events and 8K filings). Management included a portion of the promissory note for $46,000 as a liability for October 31 as it was outstanding and interpreted as due on October 19, 2016. Management subsequently opted for the settlement of this note.
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6. CONVERTIBLE NOTES PAYABLE, RELATED AND UNRELATED PARTIES (Continued)
Conversion Option is not considered to be solely indexed to the Companys own stock and, as such, recorded as a liability. While the first Promissory note for $46,000 is due October 16, 2016 and it was paid in November. The Promissory Note for $55,000 was not due until November 19, 2017 and was extinguished upon payment of first note.
Each convertible promissory note derivative liabilities have been measured at fair value at October 31, 2016 using a Black Scholes model. Since the Conversion Price contains an anti-dilution adjustment, the probability that the Conversion Price of the Notes would decrease as the share price decreased was incorporated into the valuation calculation.
At November 15, 2016, the Convertible Promissory Note for $46,000 was paid in full. As such, the fair value of the conversion feature at October 31, 2016 is $165,777.
The inputs into the Black Scholes model are as follows:
|
|
|
October 31, 2016
|
Closing share price
|
$0.00470 - $0.0132
|
Conversion price
|
$0.0006 - $0.00128
|
Risk free rate
|
0.20%-0.29%
|
Expected volatility
|
316.23% 324.92%
|
Dividend yield
|
0%
|
Expected life
|
.05 to 0.12years
|
The Company took on a further loan of $52,500, in the form of a convertible note, in November from an Accredited Investor (see subsequent events and 8K filed).
7. NOTES PAYABLE
In November 2014, the Company received $5,000 by way of an unsecured short-term loan from a non-related party for a term of nine months at 10% interest due upon repayment. The note payable and accrued interest was scheduled to be repaid on May 21, 2015. The Company was successful in obtaining an extension until December 31, 2015 upon making an interim renewal payment of $400. As of October 31, 2016, we are in default under the loan agreement.
Originally, the Company entered into a stock transfer agency agreement dated November 19, 2014 with Pacific Stock Transfer. As part of the agreement, amounts owed to the Companys previous stock transfer agent of $7,430 were paid by Pacific Stock Transfer, of which $2,189 is to be repaid to Pacific Stock Transfer by the Company in installments of $250 per month beginning on January 3, 2015. Accordingly we also recognized a $3,931 gain on the settlement of the $7,430 balance of accounts payable by assuming a loan of $2,189. Interest at 5% per annum accrues on the unpaid balance of the loan for each month. As of October 31, 2016, we are not in default under this loan agreement as in August we renegotiated the terms for this loan and interest payment commence will in November 2016.
The Company had executed four short-term lending arrangements with a non-related party. The effective dates of the loans are May 1, 2015, June 22, 2015, June 27, 2015 and September 22, 2015. The loan amounts are $25,000, $3,000, $2,700 and $1,950, respectively, with interest accruing at 5% per annum. Repayment is in one lump sum due and payable on or before December 4 through January 31, 2016. The repayment date had been extended through to October 31, 2016 for the $25,000 loan. The other outstanding notes were extended to January 31, 2017. The note for $25,000 was sold in June after adding an allowance to facilitate a conversion to 2,500,000 free trading shares on May 27, 2016. The Directors agreed to approve the conversion of the note at $.01 (at a discount of $.006 creating a BCF of $15,000) and thereby extinguishing the debt upon completion of the sale.
One of the Trader agreements included monthly compensation and to this end, part of the fees were paid in cash and then part of the fees were offset with a non-convertible note for $7,000 that is payable on or before June of 2017.
We borrowed $25,900 from an Accredited Investor, being a non-convertible note at 5% interest, as a short term bridge to facilitate longer term financial plans under discussion. Due to timing on the anticipated release of funds on this non-convertible note, we obtained a short term convertible loan from a non-related party, to assist with cash flow in the amount of $15,750; this was scheduled to be repaid within 60 days and no interest is due if repaid on time. The Company accepted a $15,750 bridge loan from the non-related party in September and it was fully repaid on October 15, 2016 which prevented future interest becoming due.
We borrowed $26,000 from an Accredited Investor, being a non-convertible note at 5% interest, as a short term loan to facilitate cash flow until longer term financial plans under discussion are completed. The loan will come due December 31, 2017.
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8. COMMITMENTS AND CONTINGENCIES
The Company is required to file its annual and quarterly financial reports with SEDAR in Canada. Due to delays in filing its financial statements and other possible forms, the Company believes it may be subject to certain potentially significant penalties to be levied by the Alberta Securities Commission (ASC). These fines have now been stated to be CDN$10,120 or approximately US$7,500 as advised and invoiced by the ASC, and have been accrued into the financial statements as of October 31, 2016. The Company is considering engaging its legal counsel to assist in reducing or eliminating these penalties and requests to file. Further correspondence has been delivered to the ASC after filing the 10-K for January 31, 2016. Subsequently, the 10Q ending April 30, 2016 and 10Q ending July 31, 2016 were filed with SEDAR and this is ongoing.
9. STOCKHOLDERS DEFICIT
Preferred Shares
The Company is authorized to issue 10,000,000 shares of preferred stock, par value $0.001 per share.
No shares of preferred stock were issued or outstanding during the nine month periods ended October 31, 2016 and 2015.
Common Shares
The Company is now authorized to issue 300,000,000 shares of common stock, par value $0.0001 per share. The Company has issued 148,457,788 common shares as of October 31, 2016 and had increased its reserve to accommodate debt as may be needed.
On March 18, 2016, the directors approved 100,000 shares of the Company's common stock be issued to Azur Universal Inc and were issued at $.65 per share as per the agreement signed July 8, 2014 (See Note 7). The amount was recorded as deposit on software acquisition under other current assets.
The Company has retained three unrelated parties as Consultants to help develop investor awareness in the Company through varied campaigns that revolve around contacting known sophisticated investors through media outlets, newsletters, emails and direct telephone calls. The consultants are compensated in combination of cash and restricted common shares. In May and June, the Company issued 5,783,333 shares of its common stock for services rendered by unrelated third parties. This represents payments to invoices totaling $229,183.
On July 20, 2016, the directors approved 900,000 of the Companys shares (book value of $26,100) be issued to Azur Universal Inc and were issued at $.029 cents per share to acquire the license rights and source code for the Global Trader software. The directors proceeded with purchasing the asset and declined to purchase the company at this time. An 8-K form was filed and a press release was sent out. The shares were issued in August and the license and rights have been acquired.
The Company also filed an 8-K form, in May, noting a share buyback program adopted by the directors to help offset future share dilution stemming from borrowing activities. The directors believe it is important to demonstrate confidence in the strength of our business plan and to reinforce our ongoing commitment to improving shareholder returns. To date no shares have been purchased and we are continuing to work with our broker dealer to establish an active account and a trading plan within their guidelines.
The Company was able to pay some of its debt obligations and the balance of the outstanding note for $25,000 was repaid from the permitted conversion of 2,500,000 shares on June 2, 2016.
The Company was able to partially pay its debt obligations and the balance of the outstanding notes were repaid from conversion of shares as follows, on September 6, converted 6,200,000 shares, on September 13, converted 6,558,000 shares and on September 14, converted 3,474,785 shares. On September 26, the second note had a partial conversion of 7,000,000 shares. The total number of common shares issued is 23,232,785 for a total value of $147,691.
On July 8, 2014, the Company entered into an agreement to issue 100,000 shares of its common stock as a deposit to acquire software and against an option to acquire 100% of the issued share capital of AZUR Universal Inc., subject to certain terms and conditions. At the date of this report certain due diligence remained to be completed. The common shares due were issued in March of 2016 as the directors wanted to continue exploring the merits and timing of this software acquisition. An additional 900,000 common shares were fully issued in August of 2016 to complete the full purchase transaction at the agreed sum. The shares were formally released upon receiving all software code and documentation as items as outlined and agreed. The total value of the shares issued to purchase the asset was recognized at $91,100.
On October 31, 2016 the directors unanimously agreed to increase the authorized common shares to 300,000,000 at par value of $.0001 and there were no changes to the preferred shares at this time.
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9. STOCKHOLDERS DEFICIT (Continued)
On October 29, 2016, the Company wished to engage Consultants and entered into an agreement. 10,000,000 common shares at $1,000 value are recorded as stock payable accordingly.
STOCK OPTIONS
The Company adopted the 2013 Equity Incentive Plan (the Plan) on January 31, 2012, reserving 5,500,000 shares for future issuances, of which a maximum of 2,500,000 may be issued as incentive stock options. The Plan provides for the issuance of non-statutory stock options or restricted stock to officers and employees, with an exercise price that is at least equal to the fair market value of the Companys common stock on the date of grant. Vesting terms and the lives of the options are to be determined by the Board of Directors upon grant. As of October 31, 2016 and 2015, no options have been issued under this Plan.
10. SUBSEQUENT EVENTS
The Company had retained TESO Communications as its Investor Relations and Public Relations manager and under the agreement the Company may pay the invoice with cash or by issuing shares against the invoices submitted. The Directors opted to issue shares before the end of the initial agreement period of January 16, 2015 but the same were not yet issued. The agreement represented a cash payment of $25,000 or the issuance of 50,000 restricted common shares at the completion of the agreement which has been extended to May 15, 2016 has now ended and the company still awaits their final invoice to complete matters.
The performance of some of the consultants retained by the Company has been disappointing and the Company is continuing to seek reimbursement or return of shares issued in some cases. The Company is committed to providing good investor awareness programs for its stakeholders and investors.
On October 29, 2016, the Company wished to engage Consultants to help further develop investor awareness in the Company by contacting known sophisticated investors through media outlets, newsletters, emails and direct telephone calls. The debt purchaser deposited the shares in December. The Directors agreed to a total maximum conversion of 10,000,000 common shares.
On November 2, 2016, the Company entered into an agreement for a loan of $52,500, in the form of a convertible note that accrues at a rate of 10%, from an Accredited Investor as filed in our 8K with the SEC in November. The Company further reduced loans by sale of $5,000 of debt.
An additional 49,294,248 shares have been issued since October 31, 2016 as part of debt retirement plans by the Company.
On November 15, 2016, the Company was able to advance funds in the amount of $25,000 from escrow to an Investor to completely retire its obligations for an outstanding $46,000 promissory note and extinguish a $55,000 promissory note for fees.
The Directors have further agreed to investigate restructuring the shares of the Company including additional classes dedicated to acquisitions and super voting shares as well as having issued additional 15,000,000 shares to the CEO for reduction in accrued loans in the amount of $15,000.
In accordance with
ASC 855, Subsequent Events
, the Company has evaluated events that occurred subsequent to the balance sheet date through the date of available issuance of these unaudited condensed financial statements. The Company determined that other than as disclosed above, there were no material reportable subsequent events to be disclosed.
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